An increase in the price level ________ the aggregate quantity supplied and ________ the aggregate quantity demanded.

Question

Quizplus · Accepted Answer

According to the law of supply, an increase in price level increases the quantity supplied. On the other hand, according to the law of demand, an increase in price level decreases the quantity demanded. Therefore, an increase in price level will increase the aggregate quantity supplied and decrease the aggregate quantity demanded, resulting in a movement up along the aggregate supply curve and a movement down along the aggregate demand curve.

An Increase in the Price Level ________ the Aggregate Quantity